Abstract
This chapter discusses the two widely used measurements of performance for the investment center: The rate of return on investment (ROI) and residual income (RI). ROI relates to a division's operating income to operating assets whereas RI is the operating income that an investment center is able to earn above some minimum rate of return on its operating assets. RI, better known as Economic Value Added (EVA), unlike ROI, is an absolute amount of income rather than a specific rate of return. Goods and services are often exchanged between various divisions of a decentralized organization. The transfer price is the selling price credited to the selling division and the cost charged to the buying division for an internal transfer of a good or service. The major goal of transfer pricing is to enable divisions that exchange goods or services to act as independent businesses.
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